The technology giant had been in intense talks with potential programming partners for over a year and was hoping to roll out the service in the next few months. But it pulled back after deciding that the licensing costs were too high for the business model Microsoft envisaged, according to these people.

“They built Microsoft TV, they demoed it for us, they asked for rate cards but then said ‘ooh ah, that’s expensive,’” said one senior media executive who had been involved in the talks.

This is not an engineering problem that clever people in Silicon Valley are going to solve. It’s a basic business model problem. You’re not going to get content owners to license you their work for less than what they get from the cable companies in order for you to use that cheap content to destroy the cable companies’ business model. But if you’re paying the same rates as the cable companies, then how are you going to beat them in head to head competition? What you’d need to do is actually produce original content of your own, or else acquire some kind of different content that’s not currently available to cable subscribers.